You’ve probably read in the press recently about some real estate agent’s that have been using the Assignment Option Clause, found in the Real Estate Council of British Columbia’s Professional Standards Manual, to engage in a practice which has come to be known as “shadow flipping.

The original intention of the Assignment Option Clause was to provide buyers with an option to retain their deposit, and back away from a purchase, if for some reason their situational circumstances changed after their initial offer to purchase was submitted.

Prior to the closing date, the clause currently allows the transfer or resale of the property to another purchaser. And while this clause was also intended to protect sellers as well, ensuring that as long as another buyer was found their sale would still move forward, shadow flipping houses seems to be doing the exactly opposite, by shortchanging them.

As Global News reported on how the clause is being used in their article What You Need to Know About ’shadow flipping’ in Vancouver, “The assignment clause allows real estate agents to sell a contract for a single property multiple times at increasingly higher prices as they make a commission on each transfer.”

Dark or shadow flipping is a highly technical and controversial real estate technique recently in the news for its use in the Vancouver real estate.  Every successive seller in the chain receives the profit of that particular portion of the property sale, and none of these additional profits accumulated through the course of these transactions find their way back to the original seller of the property. The original seller receives less than their property is truly worth, and profits from this practice are all currently going to some real estate agents and buyers in the ‘middle of the process’.

Premier Christy Clark has promised to close the loophole which allows shadow flipping houses in Vancouver. What are your thoughts on the use of the Assignment Option Clause as a means to promote the profitable (some would say sketchy) practice of shadow flipping? Is it pure greed? Should the initial seller receive the profits from the proceeds of shadow flipping? Or should the government close the loophole that allows such practices?

Contact Natasha Taylor of Sutton WestCoast Realty with any questions you may have about the BC real estate market. Call or text 778-316-4290 or send an email.

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